Halliburton Corp., the oil field services company once headed by Vice President Dick Cheney, breached the terms of its multibillion dollar contract to provide US soldiers logistical support in Iraq when one of its subcontractors outsourced security work to Blackwater USA, according to new documents released Friday by Congressman Henry Waxman.

In a December 7 letter to outgoing defense secretary Donald Rumsfeld, Waxman alleged that taxpayers have been paying sky-high prices for Blackwater's services, which were not authorized under the terms of Halliburton's contract with the US Army. Waxman said he could not ascertain the exact cost of Blackwater's work, because the Army has refused to respond to questions about the deal for the past two years.

Waxman contends Halliburton was fully aware that its subcontractor ESS Support Services, food supplier to the military, hired armed guards employed by Blackwater to provide security for its convoys.

Under the terms of its $16.5 Logistics Civil Augmentation Program (LOGCAP) contract, Halliburton subsidiary Kellogg, Brown & Root, its employees and its subcontractors are prohibited from carrying weapons without prior approval from the military.

Halliburton and Blackwater are two of the most controversial corporations working in Iraq. Halliburton has been accused of grossly inflating the costs of its services in Iraq. The company has overcharged taxpayers for fuel and food, and most recently has refused to turn over documents to a government auditor who became suspicious that the company was taking advantage of taxpayers by overstating the true cost of its work. Last month, Halliburton agreed to pay an $8 million fine to the Justice Department for overcharging the US Army for work it did in the Balkans while Cheney was chief executive of the company. Prior to the start of the Iraq war in March 2003, Halliburton was inching dangerously close to filing for bankruptcy as a result of billions of dollars in asbestos settlements. In the three and a half years since the start of the war, Halliburton's profits have increased by nearly 500 percent.

The issue of the role private military contractors, including Blackwater, have played during the Iraq war was raised when four men employed by the firm were killed in Fallujah in March 2004 while guarding an ESS food convoy. Their corpses were dragged through the streets of Fallujah, strung up on the beam of a bridge, and burned. The families of the men are suing Blackwater, claiming the company was negligent because it was more concerned for its bottom line than the safety of its guards.

Melissa Norcross, a Halliburton spokeswoman, denied that Blackwater was retained by ESS under the terms of Halliburton's LOGCAP contract with the military. She said Blackwater was one of its subcontractors but that its work was strictly related to Halliburton's Middle East regional office, and was not associated with any government contract.

Waxman disagreed.

He released documents that disclose how Halliburton violated the terms of its multibillion dollar Iraq contract by participating in a multilayered scheme that concealed the company's use of armed Blackwater guards.

The documents show that Blackwater security guards were paid a minimum of $600 a day that the company, when it prepared its billing statement, marked up invoices by at least 36 percent. Blackwater sent the invoices to Regency Hotel, a Kuwaiti company, which resubmitted the invoice to ESS, the food service company. ESS added its costs and profit to Halliburton which prepared a new bill that included another layer of profits and cost, and then sent a final bill to the Pentagon without ever disclosing Blackwater's role in providing security services for its convoys.

At a Congressional committee hearing in June, Chris Taylor, a Blackwater vice president, testified that the 36 percent markup included all the of the company's costs and was not limited to its security work. But Republican congressman Christopher Shays interrupted Taylor's testimony and ordered him to provide documented proof to back up his testimony. To date, Blackwater has not provided any of the contracts and other documents requested by Shays.

Moreover, documents Waxman's office obtained contradict testimony by Pentagon officials who have told members of Congress that Halliburton not only didn't have the authority to subcontract work to third parties to guard convoys, but that its own internal investigation found that allegations that it did so were unfounded. Tina Ballard, an under secretary of the Army, testified in front of the Government Reform Committee in September that Blackwater did not have authorized ties to the military, and that the Army had never authorized Halliburton or its subcontractors to carry weapons or guard convoys. She said she found no evidence to support the claim that Blackwater was hired by Halliburton or its subcontractors.

But documents in Waxman's possession tell a decidedly different story.

Waxman said he received a memo from ESS claiming the company secured the services of Blackwater to guard convoys under the Halliburton contract.

"If the ESS memo is accurate, it appears that Halliburton entered into a subcontracting arrangement that is expressly prohibited by the contract itself," Waxman wrote. "After more than two years, we still do not know how much ESS and Halliburton charged for these security services."

In the letter to Rumsfeld, Waxman insisted that the Pentagon immediately determine "how the Army intends to recover taxpayer funds paid to Halliburton and Blackwater for services prohibited under [Halliburton's] contract."

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